Angel fundraising

Our co-founder Marcus, recently sat down with Will Billingsley from Aptap to discuss angel investing. Here below are their thoughts on the topic -   

For those truly just getting started on their start-up journey, here’s a handy list of vocabulary you will want to be familiar with (thank you Andy Ayim): https://fundingsage.com/entrepreneur-dictionary-for-startups/

There are three baseline stages to raising angel funds:

•       Planning and alignment

•       Researching and targeting

•       Communicating and executing

Planning and alignment:

Ask yourself: How much cash do I need? When do I need it? What type of investor do I want? What is my best way of approaching those investors? How do I want to structure the round? Who in the team is responsible for the fundraising conversations? (Probably the CEO or CFO, but if there’s a tech question does the CTO take it?)

Take a look at your monthly burn rate and extrapolate how much cash you think you need to last 12-18 months. Don’t panic, there is a 99% chance your projections will be wrong, as at the early stages you’re going to be making a lot of numbers up (much like I just did there).

Then it is a question of: when does that money need to be in the bank? It will realistically take between 3-6 months to raise funds (pre-COVID) regardless of the amount you’re looking for. There are different perspectives on how long you should wait to raise.

More traction or better product market fit will mean a higher valuation or an “easier” fundraise but holding out may mean you can’t raise in time before cash runs out. The last thing you want to seem is desperate in front of investors.

If you can sustain your business with revenue, do you even need to raise at all?

Nailing on a valuation for the initial fundraise was one of the hardest things for us at ApTap. You get so wrapped up on the potential of the business that investors will likely bring you back down to earth with where you’re actually at right now. Take a look at what your competitors have done by looking at Crunchbase or digging within your network, or you can value the business as a percentage of future revenue.

This is a great read on valuing your early stage company: https://seedcamp.com/resources/how-does-an-early-stage-investor-value-a-startup/

Aligning the team on your fundraising strategy is absolutely crucial. Unless you’ve got something really special on your hands (or can sell the vision like WeWork founders) then you must realise you are going to be approaching dozens, if not hundreds, of investors over the process, and throughout those conversations you need to be signing off the say hymn sheet. Not only will you look unprofessional talking over each other in meetings but not having clearly defined roles can cause animosity within co-founders.      

The more confident you are in both presenting yourself, your company and your plan, the better your chances of success. Having a clear purpose, putting together a coherent deck and answering questions clearly and concisely, provides a strong base to get your ideas across. This takes preparation. 

At the early stages, a large part of the investor’s decision is based on whether they believe in you, the founder/s, to ride the start-up rollercoaster with all its ups and downs, to create a great success for the business and a great return for them.  Of course, they are making some kind of judgement about whether you are choosing to tackle the right market, have an interesting product to do that with and have managed to put together the right team (even if that is just an advisory board), but all of these elements can be perfect and the business will still fail if the founder can’t execute or gives up early in the journey.

Ensure that, before you speak to investors, you have done your homework and practice your pitch. Try and choose the person you are closest to who might know something about the space who you can rely on to give you unfiltered feedback - friends and family are great, but ensure the person will tell you all the things that are wrong, that you need to fix. Just having a group of people around who will tell you how great you and your idea are is not the way to hone your pitch.

Researching and targeting:

What does your ideal investor look like?

Do your due diligence on investors. Which investors fit your business strategy/ethos? What types of businesses do they usually invest in? What value do they bring besides cash? Can you get a warm intro?

Investors will do their due diligence on you, and in turn doing your due diligence shows that you’re serious and professional. Use tools like Companies House and CrunchBase to get to know who the investor is professionally. Speak to mutual connections or portfolio connections to get a better understanding of who the investor is personally.

At ApTap we wanted investors who were willing to leverage their networks for us but at the same time we didn’t want them to meddle too much, as we felt we still had a lot of shaping to do business model wise. (As a side note, we are currently fundraising and are looking for investors in the financial technology/banking space).

During the pre-seed raise at ApTap, once we’d decided how much we were looking for, which team member was going to tackle what, and what type of investor we were looking for, it became about actually finding them…

But how do you reach these investors? Well without the networks, graft. Put yourself in the right positions and you will meet the right people, however, that was much easier in the days pre-Coronavirus. Get on a Crunchbase free trial and troll through it for pertinent investors for example.

Warm introductions to investors are absolutely everything. We’ve spent years building up our networks in London’s FinTech space which are just now starting to pay off, otherwise, building a strong rapport on LinkedIn and Twitter is a great way to engage with investors.

LinkedIn of course is a much more professional setting, but the investor must connect with you as well, whereas on Twitter you can barge right into a conversation. (Sorry, not sorry as they say).

Ultimately you need to make it as easy as possible for the investor to invest in you; make sure they invest in your industry and their ticket size suits, and if you are introduced through a channel they trust, then even better.

In the meantime, as you start to garner traction with investors, go and get registered for SEIS/EIS advanced assurance as quickly as you can – it will drastically improve fundraising conversations at in the early stages.

Even if it’s not time to raise yet, start building those relationships. We unsuccessfully applied to numerous accelerators and incubators but kept in touch with the program directors, who eventually offered introductions to other investors and potential clients because they’d seen our progress in real time.    

Marcus’ take:

100% of the investments I have made have come through introductions from other people. It’s not to say that I wouldn’t ever invest in something that came through cold, but the chances are very small. I am lucky to have built up a network of people over the years of people who understand the type of founder and business that I am interested in, and they remain my most reliable source of opportunities. Doing a correlation between Companies House data, Linkedin and Crunchbase, as Will suggests, is a good way to start the research. Reaching out to somebody cold on Linkedin, just because they have the phrase Investor in the title, without any reference as to why you think that your business would be a great fit for them, is rarely the way to approach things.

In doing your research, also try and get some understanding of what sort of people would be a good fit for your company. Reach out to other founders they have invested in to see how supportive (or not) they have been on the journey. It’s likely that you will be on the journey with them, to a greater or lesser extent, for upwards of 5 or 6 years and bad behaviour at the start rarely gets better with time.

Also try and understand what an investor will bring over and above the money. Sometimes, when time is tight, you may just have to take somebody for money alone, but great investors will also help you make connections, be available for advice when you have questions about a decision, or just there to chat at 9pm on a Friday when it all just seems really hard.

(Marcus has done this for me and hasn’t even invested in ApTap…yet?)

Communicating and executing:

In preparation for pitches, negotiations and general due diligence, have your cap table, financial projections and business plan ready to share when the time is right. Be warned that investors are very unlikely to sign a non-disclosure agreement.

Don’t be afraid to ask questions! Make sure you clarify the investor’s standard terms and ask to speak to founders they have previously invested in to see what the investor is like to work with, if you haven’t already – it is always good to be transparent, open and honest with what you’d like to do from a due diligence perspective.

Qualify the investor in or out as soon as politely possible. It is not worth your or their time talking if either party is not genuinely interested. This doesn’t mean that after the first meeting you should be chomping at the bit for commitment but after the first 3 or 4 meetings you should have a strong inclination of where you stand. If the both parties keen in working together but don’t align right now, then don’t be afraid to walk away, just keep them up to date as you progress.

Creating demand is paramount – the more term sheets you have, the more leverage you have in investor conversations. This can help you increase your valuation or decrease the equity you’re having to give up, or even speed up closing your round. If you go to any of the crowd funding platforms, they will suggest that you launch your campaign with at least half the capital committed already in order to spur on that demand.

When it comes to those final negotiations, make sure you know which team member says what when going into a conversation, and align the team on things like valuation and what your thresholds look like (i.e. how much of the business are you willing to part with and at what valuation).

Once you have finally got the meeting and made your pitch, don’t be afraid to suggest some next steps and ask if there is anybody else they think you should meet. Most angels who you would want on board will try and be helpful, even if they aren’t planning to invest themselves, and these introductions can often be a good source of leads.

Also don’t be afraid to walk away if the chemistry feels wrong. As we mentioned above, it’s a long journey, and lack of chemistry between you and an investor can make having necessary conversations feel strained and add stress.

Delivering what you promise is also important in building confidence. If you promise to deliver a deck, updated numbers, introductions to other members of the team, always deliver on time and in full - people will see this as a proxy for how you deliver for your team and approach your metrics. Take your promises seriously.

As Will mentions above, the best way to get the raise, valuation and terms for the raise that you want, is to have competition for the round. This is often not an easy trick to pull off as there are many components to pulling it off (market appeal, early traction, strong team, track record, preparedness etc), but putting the time into the preparation and research before you start is a great way to go about it.

 In summary:

Raising a funding round is hard – likely the hardest thing you’ll do on your journey, especially if you’re approaching the end of your cash runway, and certainly the most time-consuming thing I’ve had to do. The results may vary and one day you can have the best conversation you’ve ever had and the next you could have an investor tearing you to shreds.

Remember that resilience is key. If you are passionate about the topic and your customers are engaging more and more, then keep pushing! We had hundreds (literally over 200) conversations and emails over the course of closing our funding rounds at ApTap.

Plan your round, do your research and execute with efficiency. Focus on your target, build demand and excitement and try to sift through those wasting your time quickly. The best investors at the early stage, as Marcus said, will get behind you as founder’s and get behind your vision.

Good luck!

UP AND TO THE RIGHT.